Farmers Insurance Urged Employees to Pay as Little as Possible on Claims

'Chihuahua' Regulator Takes Bullmastiff-Bite in Insurer Fight
By David Dietz
Dec. 27 (Bloomberg) -- The North Dakota Insurance Department, which had a $4 million budget in 2007, ranks 48th in resources among state industry regulators. Only South Dakota and Wyoming have less to spend. In 2007, the tiny department did what all other state regulators failed to do.
After an investigation that began in 2004, the agency documented that Farmers Insurance Group of Los Angeles, the nation's fifth-largest auto insurer, had run nationwide promotions urging its employees to increase profits by paying as little as possible on claims. In June, the department fined Farmers $750,000.
``Some people think that since I came from a small state, I had no firepower,'' says Jim Poolman, who was commissioner from 2001 to August 2007. ``You could think of us like a little Chihuahua nipping at your heels.''
Farmers gave employees goals to tighten payments and handed out bonuses when they met the objectives, the department found. Farmers' campaign, which included brochures and pep talks, had slogans such as ``Quest for Gold'' and ``Bring Back a Billion.''
Poolman says he took on Farmers when other state insurance regulators ignored its practices or never noticed them. In fining Farmers, the department said the company had violated state laws requiring insurers to deal fairly with customers.
It also ordered Farmers to stop encouraging employees to limit payouts. The company, while saying it didn't violate any laws, consented to the fine and agreed to remind employees to evaluate claims objectively.
`Strongly Disagrees'
``Farmers Insurance denies and strongly disagrees with the North Dakota Department of Insurance allegations,'' Farmers spokesman Jerry Davies says.
Farmers' squeeze on customers began after the company paid billions of dollars in claims for disasters such as the 1994 Northridge earthquake in Southern California, according to North Dakota's findings.
North Dakota investigators found that a Farmers office in Bismarck had been told to keep payments within the previous year's average or within set ranges instead of considering cases on their merits. The Bismarck office was also instructed to try to pin more claim denials on fraud, the state found.
``Because meeting these unfair and arbitrary goals was a part of the performance evaluation process and, therefore, linked to an employee's pay, a potential conflict of interest was created between meeting those goals and effectuating a prompt, fair and equitable settlement of each claim on its merits,'' the state's consent order said.
Poolman says he didn't tell other states of his investigation because the probe was still in progress. Still, he says, state insurance departments should have known enough about Farmers' practices to do their own probes. ``It was an issue that was out there,'' he says.
Editor: Jonathan Neumann, Charles Siler
To contact the reporter on this story: David Dietz in San Francisco at ddietz1@bloomberg.net

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